Trump has been lying a lot about his 'small business' tax cut

President Donald Trump pitched his tax
plan on Wednesday in front of a crowd of truckers. He wanted
them to know his business tax cuts aren't just for rich people -
benefits would also flow to regular Americans, including
truckers.

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"The more than 30 million Americans who have small businesses
will see - listen to this - a 40% cut in their marginal tax
rate," he said. "Forty percent."

This was a lie.

Under Trump's plan, only 1.8% of small-business owners - about
670,000 people, all with family incomes over $400,000 - would
enjoy this 40% tax cut.

"For the many American truckers who file taxes as
sole-proprietors, S corporations or partnerships, we will cap
your top tax rate at a maximum of 25%," he said. "Substantially
lower than what you're paying now."

This was mostly a lie, even as applied to the minority of
truckers who, as the president describes, work for themselves and
file taxes like a small business.

A single trucker would have to make well over $100,000 for this
cap to matter - or would need a family income over $200,000, if
married.

The average trucker makes about $41,000. So, most truckers would
come nowhere close to saving from this cap.

Plus, there's another issue with Trump's claim about independent
truckers, one that gets to the heart of the problem with Trump
and congressional Republicans' plan to cut taxes on "small
businesses."

What counts as a small business?

Small-business tax cuts are popular. A recent NBC/Wall Street
Journal poll found far more Americans thought there should be
a tax cut for small business (57%) than thought their own family
should get a tax cut (40%).

So, Republicans came up with a proposal that purports to benefit
small businesses.

Most small businesses don't pay taxes directly; they pass income
through to their owners, who report and pay tax on that income
along with everything else on their individual income-tax
returns. The Republican tax framework would cap the tax rate on
such income at 25%, even as individual income could be taxed at
rates of 35% or more.

But this creates an obvious opportunity for creative tax
planning: Instead of drawing a salary, what if a high-income
worker decides to become an independent contractor, selling
"consulting services" to his or her old employer? That worker has
just converted his or her wage income into "business" income,
allowing him or her to take advantage of this lower tax rate.

Republicans say they will stop taxpayers from gaming the system
like that. Their legislation will include "measures to prevent
the recharacterization of personal income into business income."

But then what about those high-paid independent truckers?

Income from driving a truck is labor income, whether you're an
employee or an independent contractor. Doesn't that mean these
"measures" would prevent Trump's theoretical high-income
independent trucker from benefiting from the cap in the way he
described?

source

Thomson Reuters

This proposal is bad

The Republican tax break for "small businesses" is both
overinclusive and underinclusive.

Eighty-six percent of tax filers with business income would get
no benefit at all from the proposal, because they're already
taxed at a marginal rate of 25% or less. The 14% who would
benefit are, to a first approximation, the richest 14% of
American families with business income.

Even among this affluent 14%, the benefit for most would be small
- knocking their marginal tax rate from a current 26% or 28% down
to 25%.

And as I noted before, only the very richest slice of business
owners - 670,000 of them, all making over $400,000 - would enjoy
the full 40% reduction in their tax rate that Trump bragged
about,
from 39.6% down to 25%.